Former OPEC chief says conditions right for production freeze

News Article Sponsored by SelecTransportation Resources

OPEC is on course to strike an output-freeze deal with fellow oil producers in Algiers next month because its biggest members are already pumping flat-out, the group’s former president said.

While a similar initiative failed in April, an agreement can now be reached as Saudi Arabia, Iran, Iraq and non-member Russia are producing at, or close to, maximum capacity, Chakib Khelil said in a Bloomberg Television interview. Khelil steered OPEC in 2008, the last time it implemented an output cut, which was announced in Algeria in December of that year. In a separate interview, former Qatari Energy Minister Abdullah bin Hamad al-Attiyah was convinced there is a need for an accord.

“All the conditions are set for an agreement,” Khelil said from Washington. “Probably this is the time because most of the big countries like Russia, Iran, Iraq and Saudi Arabia are reaching their top production level. They have gained all the market share they could gain.”

Analyst still have doubts

While oil prices have advanced since OPEC announced it would hold informal talks in the Algerian capital next month, analysts from UBS Group to Commerzbank doubt any freeze deal will be completed, and comments from Saudi Arabia and Nigeria have kept expectations low. Talks collapsed in April as Saudi Arabia insisted Iran would have to limit its production, a condition the country rejected as it ramped up exports previously curbed by sanctions.

As producers are almost pumping at full-tilt, the impact of any accord to prevent further increases would essentially be “psychological,” Khelil said. That would nonetheless have a benefit for the market, according to the Algerian, who was also the country’s energy minister from 1999 to 2010. The global crude oversupply is already diminishing, and markets will probably reach “complete equilibrium” next year, Khelil said.

Qatar’s Al-Attiyah, speaking by phone, said the re-balancing is proceeding slowly and there is a need for global producers to act together and speed up the process. He said it’s “really hard to say” whether anything will be agreed in Algiers.

“OPEC and other producers need to do something because for the market to rebalance on its own that will take a lot of time,” Al-Attiyah said. “Even next year, we have to be cautious and not expect that the market will rebalance quickly.”

Still, both former ministers agreed that a freeze, even if it’s only symbolic, would revive the bullish mood among oil investors and traders.

“The freeze deal will not have a huge impact on fundamentals but it will help improve the market sentiments,” Al-Attiyah said. “At the end, a step taken is better than doing nothing.”